How Business Is Conducted. Part 2

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How Business Is Conducted. Part 2

A party of gentlemen, for instance, organize a company to build a
railroad which shall run through several States. They cannot among
themselves raise the necessary capital. They are willing to risk a
reasonable amount of money in the project, if the amount required to
complete the road can be secured after their own investment shall have
been expended. They find, among wealthy capitalists, persons who are
willing to advance the funds, but they do not wish to assume any risks
as stockholders. They prefer to loan the money at a fair rate of
interest. If the scheme is successful the projectors can pay the money
back and own the property, thus derive all the advantages accruing
from their wisdom and risks.

The following is the form of a receipt and transfer voucher:

When the promoters of the project visit a loan and trust company,
they lay the facts before the officers of the company. They are told
that when they have constructed a certain amount of road the trust
company will undertake to place their loan on the market. First, the
mortgage securing the loan must be recorded in every county of each
State through which the road is to run. Satisfactory evidences that
the mortgage is so recorded must be in the possession of the trust
company. Arrangements can then be made to the effect that, as certain
sections of the road are constructed, a certain number of bonds will
be issued. The amount to be issued will depend on the cost per mile of
constructing the road. Purchasers of the bonds rely on the loan and
trust company to see that there is never an over-issue of bonds.

* The title of the corporation printed in full.

Suppose the understanding between the purchasers of the bonds and
the railroad officials provides that for the completion of each ten
miles of road there are to be issued bonds to the amount of fifty
thousand dollars. It becomes the duty of the trust company to know
that this amount is not exceeded. Any excess in issue would depreciate
the value of the security. It is seen in this how the trust company
serves the interests of both borrowers and lenders.

For explanation of Forms, see closing paragraph of this
chapter.

Right hand page.

Register of Certificates of Stock. Countersigned by the

Date of Surrendered Certificate Canceled.

No. of Ctf.

No. of Shares.

In Name of

Remarks.

■

The trust company not only attends to the business of the railroad
company in securing funds, but guarantees to purchasers of its
securities that there is no wrongful or over-issue. The part taken by
the trust company is one, then, not only to transact the business for
the corporation, but to supplement this service by aiding in securing
the faith and confidence of investors that the securities they take
are in every case what they are represented to be. Another important
service is rendered by loan and trust companies to corporations. That
is, issuing certificates of stock, and, in case of sale from one
person to another, making transfers of same. Many corporations leave
the business connected with stock operations almost entirely in the
hands of some loan and trust company. The purchase and sale of stocks
of corporations, especially those whose stocks are on the market, is
made mostly in some of the important financial centers of the
country. Here too, is where the loan and trust companies are located.
It is a special advantage to holders of stocks to be able to have the necessary record made on
the books of the company, showing that they are the holders, without
having to forward the certificates to some remote place for that
purpose.

Left hand page.

Company.

Date of New Ctf.

Countersigned and

Issued.

No. of Ctf.

No. of Shares.

In Name of

Remarks.

•

*

By an arrangement between the loan and trust company and the
corporation, the former becomes the custodian of the transfer
books. When an election of officers of the corporation takes place the
transfer and stock books must be in the hands of the inspectors of the
election. To meet this requirement the books are forwarded or handed
over to the officers of the corporation by the loan and trust
company.